UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2019~~2020

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ______________.

Commission file number: 000-24477

DIFFUSION PHARMACEUTICALS INC.

(Exact name of registrant as specified in its charter)

Delaware	30-0645032
(State of other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

1317 Carlton Avenue, Suite 200
Charlottesville, VA 22902
(Address of principal executive offices, including zip code)

(434) 220-0718

(Registrant’s telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	DFFN	Nasdaq Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐

Non-accelerated filer ☒	Smaller reporting company ☒

	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes ☐ No ☒

The number of shares of common stock outstanding at May 8, ~~2019~~2020 was ~~3,379,345~~45,989,932 shares.

~~Securities registered pursuant to Section 12(b) of the Act:~~

~~Title of each class~~	~~Trading Symbol(s)~~	~~Name of each exchange on which registered~~
~~Common Stock, par value $0.001 per share~~	~~DFFN~~	~~NASDAQ Capital Market~~

DIFFUSION PHARMACEUTICALS INC.

FORM 10-Q

MARCH 31, ~~2019~~2020

INDEX

	Page
PART I – FINANCIAL INFORMATION	1

ITEM 1. FINANCIAL STATEMENTS	1

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	11 13

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	19 21

ITEM 4. CONTROLS AND PROCEDURES	19 21

PART II – OTHER INFORMATION	2022

ITEM 1. LEGAL PROCEEDINGS	20 22

ITEM 1A. RISK FACTORS	20 22

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	20 24

ITEM 3. DEFAULTS UPON SENIOR SECURITIES	20 24

ITEM 4. MINE SAFETY DISCLOSURES	20 24

ITEM 5. OTHER INFORMATION	20 24

ITEM 6. EXHIBITS	20 24

Unless the context otherwise requires, in this report, references to the “Company,” “we,” “our” or “us” refer to Diffusion Pharmaceuticals Inc. and its subsidiaries and references to “common stock” refer to the common stock, par value $0.001 per share, of the Company.

This report contains the following trademarks, trade names and service marks of ours: Diffusion. All other trade names, trademarks and service marks appearing in this quarterly report on Form 10-Q are the property of their respective owners. We have assumed that the reader understands that all such terms are source-indicating. Accordingly, such terms appear without the trade name, trademark or service mark notice for convenience only and should not be construed as being used in a descriptive or generic sense.

See accompanying notes to unaudited interim ~~condensed~~ consolidated financial statements.

~~Condensed~~ Consolidated ~~Statement~~Statements of Changes in ~~Convertible Preferred Stock and~~ Stockholders' Equity

Convertible Preferred Stock

Stockholders' Equity

Series A

Common Stock

Additional

Total

Shares

Amount

Shares

Amount

Paid-in
Capital

Accumulated
Deficit

Stockholders'
Equity

Balance at January 1, 2018
8,306,278 $ — 967,976 $ 968 $ 82,783,865 $ (61,554,889
)
$ 21,229,944
Conversion of Series A convertible preferred stock to common stock
(8,306,278
)
— 553,752 554 (554
)
— —
Issuance of common stock to Series A convertible preferred stockholders under make-whole adjustment feature
— — 777,895 778 (778
)
— —
Issuance of common stock related to accrued dividends
— — 68,815 69 1,148,238 — 1,148,307
Series A cumulative preferred dividend
— — — — (85,993
)
— (85,993
)
Issuance of common stock and warrants, net of issuance costs
— — 1,000,000 1,000 10,416,520 — 10,417,520
Stock-based compensation expense
— — — — 324,667 — 324,667
Net loss
— — — — — (3,313,961
)
(3,313,961
)
Balance at March 31, 2018
— $ — 3,368,438 $ 3,369 $ 94,585,965 $ (64,868,850
)
$ 29,720,484

	Stockholders' Equity
	Common Stock				Additional Paid-in		Accumulated			Total Stockholders'
	Shares		Amount		Capital		Deficit			Equity
Balance at January 1, 2019		3,376,230	$	3,377	$	95,532,881	$	(79,924,699	)	$	15,611,559
Stock-based compensation expense		—		—		91,204		—			91,204
Net loss		—		—		—		(2,747,809	)		(2,747,809	)
Balance at March 31, 2019		3,376,230	$	3,377	$	95,624,085	$	(82,672,508	)	$	12,954,954

See accompanying notes to unaudited interim ~~condensed~~ consolidated financial statements.

On December 13, 2018, the Company effected a 1-for-15 reverse split of its common stock. As a result of the reverse stock split, every fifteen shares of common stock outstanding immediately prior to the reverse stock split were reclassified and combined into one share of Common Stock. No fractional shares were issued in connection with the reverse stock split. Stockholders who otherwise would have been entitled to receive fractional shares of common stock had their holdings rounded up to the next whole share. Proportional adjustments were made to the Company’s outstanding warrants, stock options and other equity securities and to the Company’s 2015 Equity Incentive Plan, as amended, to reflect the reverse stock split, in each case, in accordance with the terms thereof. The accompanying unaudited interim condensed consolidated financial statements and these notes give retroactive effect to this reverse stock split.

2.	Liquidity

The Company has not generated any revenues from product sales and has funded operations primarily from the proceeds of public and private offerings of ~~common stock and warrants, and private placements of~~equity, convertible debt and convertible preferred stock. Substantial additional financing will be required by the Company to continue to fund its research and development activities. No assurance can be given that any such financing will be available when needed or that the Company’s research and development efforts will be successful.

The Company regularly explores alternative means of financing its operations and seeks funding through various sources, including public and private securities offerings, collaborative arrangements with third parties and other strategic alliances and business transactions. The Company currently does not have any ~~credit facilities or other~~ commitments to ~~which it could utilize for future funding~~obtain additional funds and may be unable to obtain sufficient funding in the future on acceptable terms, if at all. If the Company cannot obtain the necessary funding, it will need to delay, scale back or eliminate some or all of its research and development programs or enter into collaborations with third parties to commercialize potential products or technologies that it might otherwise seek to develop or commercialize independently; consider other various strategic alternatives, including a merger or sale of the Company; or cease operations. If the Company engages in collaborations, it may receive lower consideration upon commercialization of such products than if it had not entered ~~into~~ such arrangements or if it entered into such arrangements at later stages in the product development process.

The Company has prepared its financial statements assuming that it will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred net losses since inception and it expects to generate losses from operations for the foreseeable future primarily due to research and development costs for its potential product candidates, which raises substantial doubt about the Company’s ability to continue as a going concern. The Company currently has no sources of revenue and its ability to continue as a going concern is dependent on its ability to raise capital to fund its future business plans. Additionally, volatility in the capital markets and general economic conditions in the United States may be a significant obstacle to raising the required funds. These factors raise substantial doubt about its ability to continue as a going concern. The financial statements included herein do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. If the going concern basis were not appropriate for these financial statements, adjustments would be necessary in the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used. The Company believes its cash and cash equivalents as of March 31, 2019 are sufficient to fund operations into July 2019.

~~DIFFUSION PHARMACEUTICALS INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Operations of the Company are subject to certain risks and uncertainties including various internal and external factors that will affect whether and when the Company’s product candidates become approved drugs and how significant their market share will be, some of which are outside of the Company’s control. The length of time and cost of developing and commercializing these product candidates and/or failure of them at any stage of the drug approval process will materially affect the Company’s financial condition and future operations. The Company believes its cash and cash equivalents as of March 31, 2020, along with the $4.8 million in proceeds received during the second quarter of 2020 related to warrant exercises, are sufficient to fund operations into the third quarter of 2021.

3.	Basis of Presentation and Summary of Significant Accounting Policies

The Summary of Significant Accounting Policies included in the Company's Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the Securities and Exchange Commission on March ~~19, 2019,~~17, 2020, have not materially changed, except as set forth below.

Basis of Presentation

The accompanying unaudited interim ~~condensed~~ consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as found in the Accounting Standard Codification (“ASC”) and Accounting Standards Updates (“ASUs”) of the Financial Accounting Standards Board (“FASB”), and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). In the opinion of management, the accompanying unaudited interim ~~condensed~~ consolidated financial statements of the Company include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the unaudited interim ~~condensed~~ consolidated financial statements) considered necessary to present fairly the Company’s financial position as of March 31, ~~2019,~~2020, and its results of operations and cash flows for the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019. Operating results for the three months ended March 31, ~~2019~~2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2019.~~2020. The unaudited interim ~~condensed~~ consolidated financial statements presented herein do not contain the required disclosures under GAAP for annual financial statements. The accompanying unaudited interim ~~condensed~~ consolidated financial statements should be read in conjunction with the annual audited financial statements and related notes as of and for the year ended December 31, ~~2018~~2019 filed with the SEC on Form 10-K on March ~~19, 2019.~~17, 2020.

Use of Estimates

The preparation of the unaudited interim ~~condensed~~ consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date the financial statements and reported amounts of expense during the reporting period. ~~Actual~~The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results ~~could differ from~~of operations and financial condition, including sales, expenses, reserves and allowances, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those ~~estimates.~~estimates in future periods. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the unaudited interim ~~condensed~~ consolidated financial statements, actual results may materially vary from these estimates. Estimates and assumptions are periodically reviewed, and the effects of revisions are reflected in the unaudited interim ~~condensed~~ consolidated financial statements in the period they are determined necessary.

DIFFUSION PHARMACEUTICALS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Financial Instruments

Fair value is the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value determination in accordance with applicable accounting guidance requires that a number of significant judgments be made. Additionally, fair value is used on a nonrecurring basis to evaluate assets for impairment or as required for disclosure purposes by applicable accounting guidance on disclosures about fair value of financial instruments. Depending on the nature of the assets and liabilities, various valuation techniques and assumptions are used when estimating fair value. The carrying amounts of certain of the Company’s financial instruments, including cash equivalents and accounts payable ~~and accrued expenses approximate~~are shown at cost, which approximates fair value due to the short-term nature of ~~those~~these instruments. The Company follows the provisions of FASB ASC Topic 820, Fair Value Measurement, for financial assets and liabilities measured on a recurring basis. The guidance requires fair value measurements be classified and disclosed in one of the following three categories:

•

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

•

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liabilities.

•

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity.

The following fair value hierarchy table presents information about the Company’s cash equivalents measured at fair value on a recurring basis:

	March 31, 2020
	(Level 1)		(Level 2)		(Level 3)
Assets
Cash equivalents	$	9,916,053	$	—	$	—

~~DIFFUSION PHARMACEUTICALS INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

	December 31, 2019
	(Level 1)		(Level 2)		(Level 3)
Assets
Cash equivalents	$	14,006,193	$	—	$	—

Intangible Asset

The Company's RES-529 intangible asset is assessed for impairment annually on October 1 of the Company’s fiscal year or more frequently if impairment indicators exist. There was no impairment to the Company’s RES-529 intangible asset recognized during both the three months ended March 31, ~~2019~~2020 and ~~2018.~~

~~Research and Development~~

Major components of research and development costs include internal research and development (such as salaries and related employee benefits, equity-based compensation, supplies and allocated facility costs) and contracted services (research and development activities performed on the Company’s behalf). Costs incurred for research and development are expensed as incurred.

At the end of the reporting period, the Company compares payments made to third-party service providers to the estimated progress toward completion of the research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that the Company estimates has been made as a result of the services provided, the Company may record net prepaid or accrued expenses relating to these costs. Upfront payments made to third parties who perform research and development services on the Company’s behalf are expensed as services are rendered.

~~Leases~~

In February 2016, the FASB issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of operating lease right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. See note 7 for further details.2019.

Net Loss Per Common Share

Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of ~~Common Stock~~common stock outstanding during each period. Diluted net loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as convertible debt, convertible preferred stock, common stock warrants, stock options and unvested restricted stock that would result in the issuance of incremental shares of ~~Common Stock.~~common stock. In computing the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as the impact is anti-dilutive.

DIFFUSION PHARMACEUTICALS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following potentially dilutive securities outstanding as of March 31, ~~2019~~2020 and ~~2018~~2019 have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive:

	March 31,				March 31,
	2019		2018		2020		2019
Convertible debt		—		14,325
Common stock warrants		2,087,012		2,113,815		21,261,070		2,087,012
Stock options		256,057		203,586		1,182,629		256,057
Unvested restricted stock awards		—		102		98,100		—
		2,343,069		2,331,828		22,541,799		2,343,069

~~Amounts in the table reflect the Common Stock equivalents of the noted instruments.~~

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurements, which changes the fair value measurement disclosure requirements of ASC 820. The goal of the ASU is to improve the effectiveness of ASC 820's disclosure requirements by providing users of the financial statements with better information about assets and liabilities measured at fair value in the financial statements and notes thereto. The ~~guidance is applicable to public business entities for fiscal years beginning after December 15, 2019~~Company adopted ASU No. 2018-13 in the first quarter of 2020 and ~~interim periods within those years. The Company is currently evaluating the potential impact of~~ the adoption ~~of this standard on its related disclosures.~~

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~ to increase transparency and comparability among organizations by requiring the recognition of operating lease right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under ASC 842, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

~~The Company adopted ASC 842, effective January 1, 2019 using~~did not have a ~~modified retrospective approach and elected to apply the available practical expedients. The standard had an~~material impact on the Company’s unaudited interim condensed consolidated balance sheet but did not have an impact on the Company’s unaudited interim condensed consolidated statements of operations or consolidated statements of cash flows upon adoption. The most significant impact of ASC 842 was the recognition of a $0.3 million ROU asset and corresponding lease liability for the Company's ~~single operating lease.~~

~~On January 1, 2019, the Company adopted ASU 2018-07,~~ ~~Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting~~ ~~(“ASU No. 2018-07”) which simplifies the accounting for share-based payments granted to nonemployees for goods and services. The ASU supersedes ASC 505-50~~ ~~Equity-based Payments to Non-employees~~ ~~and expands the scope of ASC 718 to include~~ ~~all~~ share-based payment arrangements related to the acquisition of goods and services from both nonemployees and employees. The adoption of ASU No. 2018-17 did not have an impact on the unaudited interim condensed consolidated financial ~~statements of the Company.~~statements.

5.	Stockholders' Equity and Common Stock Warrants

~~2018~~2019 Common Stock ~~Offering~~Offerings

In ~~January 2018,~~December 2019, the Company ~~entered into~~completed an ~~Underwriting Agreement~~offering (the ~~“Agreement”~~“December 2019 Offering”) ~~pursuant to which it issued 1,000,000~~of 6,266,787 shares of ~~Common Stock~~its common stock and warrants to purchase ~~1,000,000~~6,266,787 shares of ~~Common Stock with~~common stock. The shares of common stock and warrants were sold for a combined purchase price of $0.5585 per share for net proceeds of $3.0 million. The December 2019 Offering warrants are exercisable beginning on the date of their issuance until June 13, 2025 at an initial exercise price ~~of $12.00~~equal to $0.4335 per share for cash proceeds of $10.8 million. In addition, as compensation for its services, the Company granted to the underwriter in the transaction an option (the “Over-Allotment Option”) to purchase, in the aggregate, 150,000 shares of Common Stock (the “Option Shares”) and warrants to purchase up to 150,000 shares of Common Stock (the “Option Warrants”). The underwriter exercised its right to purchase a portion of the Option Warrants and received an additional 131,375 warrants to purchase Common Stock with an initial exercise price $12.00 per share.

~~DIFFUSION PHARMACEUTICALS INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

In addition, at the closing of the December 2019 Offering, the Company issued ~~to designees of the underwriter~~ warrants to purchase up to ~~50,000~~313,339 shares of ~~Common Stock.~~common stock to designees of the placement agent. The ~~underwriter’s~~placement agent's warrants have an exercise price of ~~$15.00~~$0.6981 per share and a term of five years from the date of ~~issuance~~issuance.

In November 2019, the Company completed a registered direct public offering (the “November 2019 Offering”) of 5,104,429 shares of its common stock, and ~~otherwise substantially similar terms~~6,324,143 pre-funded warrants each to purchase one share of common stock, together with warrants to purchase up to 22,857,144 shares of common stock at a combined public offering price of $0.35 per share and associated warrants for total net proceeds of $3.3 million. The warrants were issued with an exercise price of $0.35 per warrant and are exercisable beginning on their date of issuance. Of the ~~form~~warrants issued, 11,428,572 have a term of 18 months and 11,428,572 have a term of five years. During the year ended December 31, 2019, 11,091,716 of those warrants were exercised for proceeds of $3.9 million.

DIFFUSION PHARMACEUTICALS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In addition, at the closing of the ~~investor warrant.~~November 2019 Offering, the Company issued warrants to purchase up to 571,429 shares of common stock to designees of the placement agent. The placement agent's warrants have an exercise price of $0.4375 per share and a term of five years from the date of issuance.

~~During its evaluation of equity classification for the Common Stock warrants,~~In May 2019, the Company ~~considered the conditions as prescribed within ASC 815-40,~~ ~~Derivatives~~completed a registered direct public offering (the “May 2019 Offering”) of 1,317,060 shares of common stock and ~~Hedging, Contracts in an Entity’s own Equity~~ ~~(“ASC 815-40”).~~a private placement of warrants to purchase 1,317,060 shares of common stock. The ~~conditions within ASC 815-40 are not subject to~~shares of common stock and warrants were sold for a ~~probability assessment.~~combined purchase price of $4.895 for total net proceeds of $5.6 million. The warrants ~~do not fall under~~are exercisable beginning on the ~~liability criteria within ASC 480 “~~~~Distinguishing Liabilities from Equity~~~~” as they are not puttable and do not represent~~date of their issuance until November 29, 2024 at an ~~instrument that has a redeemable underlying security. The warrants do meet the definition of a derivative instrument under ASC 815, but are eligible for the scope exception as they are indexed~~initial exercise price equal to ~~the Company’s own stock and would be classified in permanent equity if freestanding.~~$5.00.

~~As a result~~In addition, at the closing of the ~~Company's Common Stock offering in January 2018, all outstanding~~May 2019 Offering, the Company issued warrants to purchase up to 65,853 shares of ~~the Company's Series A convertible preferred~~common stock converted into 1,400,462 shares (the “Conversion Shares”) of Common Stock of which (i) 553,752 shares were issued for the automatic conversion of Series A convertible preferred stock (ii) 68,815 shares were issued upon settlement of accrued dividends and (iii) 777,895 shares were issued for the settlementto designees of the ~~“make-whole” adjustment feature. A deemed dividend~~placement agent. The placement agent's warrants have an exercise price of ~~$8.2 million was recorded against additional paid-in-capital for~~$6.11875 per share and a term of five years from the ~~value~~date of ~~the common shares issued for the settlement of the make-whole adjustment feature.~~issuance.

Common Stock Warrants

As of March 31, ~~2019,~~2020, the Company had the following warrants outstanding to acquire shares of its ~~Common Stock:~~common stock:

	Outstanding		Range of exercise price per share			Expiration dates	Outstanding		Range of exercise price per share			Expiration dates
Common stock warrants issued before 2016		1,767	$562.50	-	$735.00	2019
Common stock warrants issued in 2017 related to Series A convertible preferred stock offering		903,870		$33.30		March 2022		903,870		$33.30		March 2022
Common stock warrants issued in 2018 related to the common stock offering		1,181,375	$12.00	-	$15.00	January 2023		1,181,375	$12.00	-	$15.00	January 2023
Common stock warrants issued related to the May 2019 Offering								1,382,913	$5.00	-	$6.11875	May and December 2024
Common stock warrants issued related to the November 2019 Offering								11,212,786	$0.35	-	$0.4375	May 2024
Common stock warrants issued related to the December 2019 Offering								6,580,126	$0.4335	-	$0.6981	December 2024 and June 2025
		2,087,012						21,261,070

During the three months ended March 31, ~~2019,~~2020, no warrants expired, and no1,124,071 warrants were ~~exercised.~~exercised at an exercise price of $0.35 per warrant.

6.	Stock-Based Compensation

2015 Equity Plan

The Diffusion Pharmaceuticals Inc. 2015 Equity Incentive Plan, as amended (the "2015 Equity Plan"), provides for increases to the number of shares reserved for issuance thereunder each January 1 equal to 4.0% of the total shares of the Company’s ~~Common Stock~~common stock outstanding as of the immediately preceding December 31, unless a lesser amount is stipulated by the Compensation Committee of the Company's board of directors. Accordingly, ~~135,049~~1,339,215 shares were added to the reserve as of January 1, ~~2019,~~2020, which shares may be issued in connection with the grant of stock-based awards, including stock options, restricted stock, restricted stock units, stock appreciation rights and other types of awards as deemed appropriate, in each case, in accordance with the terms of the 2015 Equity Plan. As of March 31, ~~2019,~~2020, there were ~~77,340~~485,602 shares of ~~Common Stock~~common stock available for future issuance under the 2015 Equity Plan.

DIFFUSION PHARMACEUTICALS INC.

NOTES TO UNAUDITED ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS

The Company recorded stock-based compensation expense in the following expense categories of its unaudited interim ~~condensed~~ consolidated statements of operations for the periods indicated:

	Three Months Ended March 31,				Three Months Ended March 31,
	2019		2018		2020		2019
Research and development	$	13,596	$	16,372	$	96,530	$	13,596
General and administrative		77,608		308,295		94,850		77,608
Total stock-based compensation expense	$	91,204	$	324,667	$	191,380	$	91,204

The following table summarizes the activity related to all stock option grants for the three months ended March 31, ~~2019:~~2020:

Number of
Options

Weighted
average
exercise price
per share

Weighted
average
remaining
contractual life
(in years)

Aggregate intrinsic value

Balance at January 1, 2019
203,736 $ 88.14 $ 143
Granted
59,670 2.10
Forfeited
(7,202
)
123.38
Expired
(147
)
276.00
Outstanding at March 31, 2019
256,057 $ 66.99 7.19 $ 96,716
Exercisable at March 31, 2019
175,720 $ 93.36 6.19 $ 8,651

	Number of Options			Weighted average exercise price per share		Weighted average remaining contractual life (in years)		Aggregate intrinsic value
Balance at January 1, 2020		309,276		$	55.78			$	—
Granted		873,500			0.47
Expired		(147	)		142.50
Outstanding at March 31, 2020		1,182,629		$	14.91		9.0	$	—
Exercisable at March 31, 2020		560,524		$	30.60		8.2	$	—

The weighted average grant date fair value of stock option awards granted was ~~$1.77~~$0.36 during the three months ended March 31, ~~2019.~~2020. The total fair value of options vested during the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 was $0.2 million and ~~$0.3~~$0.2 million, respectively. No options were exercised during any of the periods presented. At March 31, ~~2019,~~2020, there was ~~$0.6~~$0.4 million of unrecognized compensation expense that will be recognized over a weighted-average period of ~~1.51~~1.81 years.

Options granted were valued using the Black-Scholes model and assumptions used to value the options granted during the ~~first~~ three months ~~of 2019~~ended March 31, 2020 were as follows:

During the three months ended March 31, 2020, the Company granted 98,100 restricted stock awards to a member of the board of directors of the Company. The grant date fair value of each restricted stock award granted during the three months ended March 31, 2020 was $0.51. The shares begin to vest 18 months after the grant date. The Company recognized approximately $4,000 in expense related to this award during the three months ended March 31, 2020 and, at March 31, 2020, there was approximately $46,000 of unrecognized compensation cost that will be recognized over a weighted average period of 2.83 years.

7.	Commitments and Contingencies

Office Space Rental

The Company has a non-cancelable operating lease for office and laboratory space in Charlottesville, Virginia, which began in April of 2017 and, as of ~~March~~December 31, 2019, has a remaining lease term of approximately ~~3.1~~2.3 years. ~~As disclosed in Note 3, the~~The Company adopted ASC 842 in the first quarter of 2019 and as a result of the adoption, the Company recognized a current operating lease liability of $0.1 million and a noncurrent operating lease liability of $0.2 million with a corresponding ~~Right-Of-Use (“ROU”)~~ROU asset of the combined amounts, which is based on the present value of the minimum rental payments of the lease. The discount rate used to account for the Company's operating lease under ASC 842 is the Company’s estimated incremental borrowing rate of 10%. The original term of the lease ends in the second quarter of 2022 and the Company has an option to extend for another 5five years. This option to extend was not recognized as part of the Company's measurement of the ROU asset and operating lease liability as of March 31, ~~2019.~~

~~DIFFUSION PHARMACEUTICALS INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

2020.

Rent expense related to the Company's operating lease was approximately ~~$20,000~~$30,000 and ~~$28,000~~$20,000 for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. Future minimum rental payments under the Company's non-cancelable operating lease at was as follows as of March 31, ~~2019:~~2020:

Rental Commitments

March 31, 2019

2019
$ 86,149
2020
116,464
2021
118,519
2022
39,735
Total
360,867
Less: imputed interest
47,503
Current and noncurrent operating lease liability
$ 313,364

~~Future minimum rental payments under the Company's non-cancelable operating lease was as follows as of December 31, 2018:~~

	Rental Commitments		Rental Commitments
	December 31, 2018
2019	$	114,409
2020		116,464
2020 (remaining)			$	87,691
2021		118,519		118,519
2022		39,735		39,735
Total	$	389,127		245,945
Less: imputed interest				(22,188	)
Current and noncurrent operating lease liability			$	223,757

In the course of normal business operations, the Company enters into agreements with universities and contract research organizations, or CROs, to assist in the performance of research and development activities and contract manufacturers to assist with chemistry, manufacturing, and controls related expenses. Expenditures to CROs represent a significant cost in clinical development for the Company. The Company could also enter into additional collaborative research, contract research, manufacturing, and supplier agreements in the future, which may require upfront payments and long-term commitments of cash.

The Company has established a 401(k) defined contribution plan (the “401(k) Plan”) that covers all employees who qualify under the terms of the plan. Eligible employees may elect to contribute to the 401(k) Plan up to 90% of their compensation, limited by the IRS-imposed maximum. The Company provides a safe harbor match with a maximum amount of 4% of the participant’s compensation. The Company made matching contributions under the 401(k) Plan of approximately $17,000 and $18,000 for the three months ended March 31, 2020 and 2019, respectively.

On August 7, 2014, a complaint was filed in the Superior Court of Los Angeles County, California by Paul Feller, the Company’s former Chief Executive Officer under the caption Paul Feller v. RestorGenex Corporation, Pro Sports & Entertainment, Inc., ProElite, Inc. and Stratus Media Group, GmbH(Case No. BC553996). The complaint asserts various causes of action, including, among other things, promissory fraud, negligent misrepresentation, breach of contract, breach of employment agreement, breach of the covenant of good faith and fair dealing, violations of the California Labor Code and common counts. The plaintiff is seeking, among other things, compensatory damages in an undetermined amount, punitive damages, accrued interest and an award of attorneys’ fees and costs. On December 30, 2014, the Company filed a petition to compel arbitration and a motion to stay the action. On April 1, 2015, the plaintiff filed a petition in opposition to the Company’s petition to compel arbitration and a motion to stay the action. After a hearing for the petition and motion on April 14, 2015, the Court granted the Company’s petition to compel arbitration and a motion to stay the action. On January 8, 2016, the plaintiff filed an arbitration demand with the American Arbitration Association. On November 19, 2018 at an Order to Show Cause Re Dismissal Hearing, the Court found sufficient grounds not to dismiss the case, and an arbitration hearing has been scheduled for November ~~2019.~~2020. The Company believes this matter is without merit and intends to defend the arbitration vigorously. Because this matter is in an early stage, the Company is unable to predict its outcome and the possible loss or range of loss, if any, associated with its resolution or any potential effect the matter may have on the Company’s financial position. Depending on the outcome or resolution of this matter, it could have a material effect on the Company’s financial position.

You should read the following discussion of our financial condition and results of operations together with the unaudited interim ~~condensed~~ consolidated financial statements and the notes thereto included elsewhere in this report and other financial information included in this report. The following discussion may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Part I — Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Special Note Regarding Forward-Looking Statements” in this report and under “Part I — Item 1A. Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2018. These risks could cause our actual results to differ materially from any future performance suggested below.

We are a clinical stage biotechnology company developing new treatments for ~~life-threatening~~life threatening conditions by improving the body’s ability to bring oxygen to the areas where it is needed most. We are developing our lead product candidate, transcrocetinate sodium, also known as trans sodium crocetinate (“TSC”), for use in those life-threatening conditions in which cellular oxygen deprivation (“hypoxia”) is the basis for significant unmet medical needs. TSC is designed to safely and selectively target and re-oxygenate the micro-environment of hypoxic cells, and can potentially be used in many indications, including stroke, oncology, multiple organ failure and ~~cardiovascular/stroke.~~cardiovascular disease. In stroke, TSC helps promote the diffusion of oxygen into those brain cells in which oxygen-deprivation causes neuronal death resulting in patient mortality or morbidity. In cancer, TSC re-oxygenates treatment-resistant cancerous tissue, making the cancer cells up to three times more susceptible to the therapeutic effects of standard-of-care radiation therapy and chemotherapy. In ~~stroke,~~multiple organ failure, we have begun a cooperative research effort with University of Virginia Health (UVA) and the Integrated Translational Research Institute of Virginia (iTHRIV), to evaluate TSC ~~helps promote the diffusion~~in patients with Acute Respiratory Distress Syndrome (ARDS) associated with COVID-19 infection. iTHRIV is a National Institutes of ~~oxygen into those brain cells in which oxygen-deprivation causes neuronal death resulting in patient mortality or morbidity.~~Health (NIH)-funded Clinical and Translational Awards (CTSA) program.

A range of tissue types, including both ~~cancerous~~normal and ~~normal~~cancerous cells, has been shown to be safely re-oxygenated in our preclinical and clinical studies using TSC’s novel mechanism of action. We believe TSC’s ability to re-oxygenate normal (i.e. non-cancerous) tissue that has become oxygen-deprived provides opportunities for new therapeutic approaches to conditions ranging from stroke and emergency medicine - including multiple organ failure associated with Acute Respiratory Distress Syndrome (ARDS) - to cardiovascular and neurodegenerative diseases. In ~~oncology,~~the treatment of cancerous tissue, we believe TSC’s therapeutic potential to lessen the tumors treatment resistance to radiation and chemo-therapy is not limited to one specific tumor type, thereby making it potentially useful to improve standard-of-care treatments in many life-threatening cancers. Given TSC's safety profile and animal data, we could, with appropriate funding, move directly into Phase 2 studies for TSC in ~~many such~~other cancers. Likewise, we believe TSC’s ability to re-oxygenate normal tissue that has become oxygen-deprived provides opportunities for new therapeutic approaches to conditions ranging from stroke and emergency medicine to cardiovascular indications. The successful completion of trials for TSC or any other potential product candidate in these or any other indication ~~are~~is dependent upon our ability to further raise necessary capital.

We believe that TSC has potential applications in stroke and emergency medicine. In stroke, a Phase 2 trial in cooperation with the University of California Los Angeles (UCLA) and the University of Virginia (UVA) to test TSC in the treatment of acute ischemic or hemorrhagic stroke is currently enrolling patients. Stroke is the 5th leading cause of death in the U.S. and the No. 1 cause of adult disability. Our ~~most advanced~~stroke trial, which features in-ambulance dosing of TSC, is named the “PreHospital Acute Stroke Therapy - TSC” (PHAST - TSC) study, and is expected to enroll 160 patients, with 80 in the treatment arm and 80 in the control arm. We believe in-ambulance dosing of TSC will significantly cut the time in which the stroke-related oxygen deprivation to brain cells goes untreated, potentially leading to a better outcome for stroke victims treated in this manner. Near term enrollment in this trial is expected to be minimal for the duration of the COVID-19 pandemic.

Patients with COVID-19 infections are at risk for developing ARDS, which can lead to death from systemic hypoxemia (general lack of oxygen to body tissue and vital organs). We, along with researchers affiliated with UVA and iTHRIV, believe the oxygen-enhancing mechanism of action of TSC could benefit COVID-19 patients by mitigating the multiple organ failure that often accompanies systemic hypoxemia, and are, together, exploring avenues to advance TSC’s development as quickly as possible for this use. Preclinical data indicate TSC increases oxygen availability in animal models of acute lung injury, mitigating the negative effects of systemic hypoxemia. Preclinical publications also indicate TSC’s ability to mitigate systemic hypoxemia in other animal models, including hemorrhagic shock. Clinical data from 150 patients receiving TSC for other indications demonstrate that the drug has an acceptable safety profile in both healthy and critically ill patients.

We, together with UVA/iTHRIV, have engaged in initial discussions with the U.S. Food and Drug Administration (FDA) to assess possible regulatory pathways for the evaluation of TSC in ARDS-related COVID-19 patients.

Our oncology program targets TSC against treatment-resistant brain cancer. A Phase 2 clinical program, completed in the second quarter of 2015, evaluated 59 patients with newly diagnosed glioblastoma multiforme (“GBM”), a particularly deadly form of primary brain cancer. GBM affects approximately 12,000 patients annually in the United States and approximately 35,000 patients annually worldwide. This ~~open-label,~~open label, historically controlled study demonstrated a favorable safety and efficacy profile for TSC when combined with ~~GBM's~~GBM’s standard of care, including a 37% improvement in overall survival over the control group at two years. A particularly strong efficacy signal was seen in the inoperable patients, where survival of TSC-treated patients at two years was increased by almost four-fold over the controls. In December 2017, we initiated the INvestigation of TSC Against Cancerous Tumors (INTACT) Phase 3 trial in the newly diagnosed inoperable GBM patient population. ~~Patient enrollment began in January 2018.~~ The trial ~~will~~is designed to enroll 236 patients in total, with 118 in the treatment arm and 118 in the control arm.

The trial ~~is beginning~~began with an FDA-mandated open label 8 patient safety run-in for which enrollment has completed and is now closed. With the ~~Company expects~~FDA’s permission, a total of 19 patients were enrolled to ensure that at least 8 complete data sets meeting the FDA’s specified 4-month exposure period would be ~~finished~~available for review. The INTACT Trial Data Safety Monitoring Board (DSMB) met in the ~~second~~third quarter of ~~2019.~~2019 and, based on their analysis, recommended that the study be continued. The DSMB concluded that no adverse safety signal had been observed, and unanimously recommended continuing the study as planned using the highest tested dose of TSC - 1.5 mg/kg - during the adjuvant treatment chemotherapy period with temozolomide. We believe that a preliminary efficacy signal was also received. A total of 10 patients were enrolled into the higher dose cohorts and 9 in the lower dose cohorts. In the higher dose patients, where the best results were expected, 3 discontinued treatment before meeting the FDA exposure period criteria. Of the 7 patients who met the criteria, 5 remain alive as of March 12, 2020. Commencement of enrollment in the randomization portion of the INTACT Phase 3 Trial is contingent upon our entering into a strategic partnership providing the necessary resources to undertake the full ~~236 patient~~ trial.

Other cancerous tumor targets upon which the Company’s technology is focused include pancreatic cancer and brain metastasis, for which an FDA Orphan Designation has been granted to TSC. We believe that TSC programs for such cancers are Phase 2 ready, as safety profiles have been demonstrated in other oncology programs, protocols have been written, FDA interaction has taken place, and key opinion leaders have been engaged. Further research and development of TSC as a potential treatment for these indications is largely dependent on the necessary financial resources becoming available.

We believe that TSC has potential application in other indications involving hypoxia, notably stroke and emergency medicine, as well as cardiovascular and neurodegenerative diseases. A Phase 2 trial program in cooperation with UCLA and the University of Virginia to test TSC in the treatment of acute stroke has received approval for enrollment by the FDA, with the first enrolled patient expected in the third quarter of 2019. This trial, which will feature in-ambulance dosing of TSC, is named the PreHospital Acute Stroke Therapy -TSC (PHAST - TSC) and is expected to enroll 160 patients, with 80 in the treatment arm and 80 in the control arm. We believe in-ambulance dosing of TSC could significantly cut the time in which the stroke-related oxygen deprivation to brain cells goes untreated, potentially leading to a better outcome for stroke victims treated in this manner. In the fourth quarter of 2018, we received FDA permission to begin patient enrollment in the PHAST - TSC Phase 2 trial and expect to begin enrollment in third quarter of 2019, following completion of the institutional review board and contracting activities.

In addition to the TSC programs, we are exploring alternatives regarding how best to capitalize upon our product candidate RES-529, which may include possible out-licensing and other options. RES-529 is a novel PI3K/Akt/mTOR pathway inhibitor which has completed two Phase 1 clinical trials for age-related macular degeneration and was in preclinical development in oncology, specifically GBM. RES-529 has shown activity in both in vitro and in vivo glioblastoma animal models and has been demonstrated to be orally bioavailable and capable of crossing the ~~blood-brain~~blood brain barrier.

The spread of COVID-19 during 2020 has caused an economic downturn on a global scale, as well as significant volatility in the financial markets. In March 2020 the World Health Organization declared COVID-19 a pandemic. As of May 11, 2020, we have experienced some disruptions to clinical operations, including with respect to patient enrollment in our clinical trials. In this time of uncertainty as a result of the COVID-19 pandemic, we are continuing to conduct trials at certain clinical trial sites while taking precautions to provide a safe work environment for our trial participants and employees. However, some in-person visits are currently on hold and other activities are being conducted remotely to the extent possible. We have also made internal resource allocation decisions in order to deliver on key business objectives and to increase our financial flexibility, including, for example, by pausing the development of certain preclinical research programs, delaying the start of certain longer-term clinical studies, limiting staff hiring and reducing the number of contract workers, and delaying or limiting information technology and facilities infrastructure projects. We may have to take further actions that we determine are in the best interests of our trial participants and employees or as required by federal, state, or local authorities.

As the pandemic continues to unfold, the extent of the pandemic’s effect on our operational and financial performance will depend in large part on future developments, which cannot be predicted with confidence at this time. Future developments include changes in the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, the impact on governmental programs and budgets, the development of treatments or vaccines, and the resumption of widespread economic activity. Any prolonged material disruption on recruiting or retaining patients in our clinical trials, the ability of our suppliers to provide materials for our product candidates, or the regulatory review process could cause additional delays with respect to product development activities and could negatively impact our consolidated financial position, consolidated results of operations and consolidated cash flows.

As of March 31, ~~2019,~~2020, we had cash and cash equivalents of ~~$5.3~~$10.8 million. We have incurred operating losses since inception, have not generated any product sales revenue and have not achieved profitable operations. We incurred a net loss of ~~$2.7~~$2.6 million for the three months ended March 31, ~~2019.~~2020. Our accumulated deficit as of March 31, ~~2019~~2020 was ~~$82.7~~$94.3 million, and we expect to continue to incur substantial losses in future periods. We anticipate that our operating expenses will increase as we continue to advance our lead, clinical-stage product candidate, TSC. We anticipate that our expenses will substantially increase as we:

We intend to use our existing cash and cash equivalents for working capital and to fund the research and development of TSC. We believe that our cash and cash equivalents as of March 31, ~~2019,~~2020, along with the $4.8 million in proceeds received in the second quarter of 2020 related to warrant exercises, will enable us to fund our operating expenses and capital expenditure requirements (including our clinical trials) into ~~July 2019. However, we will need to secure additional funding in~~ the ~~future, from one or more equity or debt financings, collaborations, or other sources, in order to carry out all~~third quarter of ~~our planned research and development activities with respect to TSC and our other product candidates.~~2021.

We have not yet generated any revenue from product sales. We do not expect to generate revenue from product sales for the foreseeable future.

Research and development costs ~~are charged to expense as incurred. These costs~~ include, but are not limited ~~to, expenses related~~ to, third-party contract research arrangements, employee-related expenses, including salaries, benefits, stock-based compensation and travel expense reimbursement. Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As we advance our product candidates, we expect the amount of research and development costs will continue to increase for the foreseeable future. Research and development costs are charged to expense as incurred.

General and administrative expenses consist principally of salaries and related costs for executive and other personnel, including stock-based compensation, expenses associated with investment bank and other financial advisory services, and travel expenses. Other general and administrative expenses include professional fees, facility-related costs, communication expenses and professional fees for legal, patent prosecution and maintenance, and consulting and accounting services.

Interest income ~~consists of the~~is interest earned from our cash and cash equivalents.

Since inception, we had incurred net losses and until 2018, we had not recorded any U.S. federal or state income tax benefits for the losses as they had been offset by valuation allowances. As a result of the change in net operating loss carryforward period associated with the Tax Cuts and Jobs Act (“the 2017 Tax Act”), weWe recognize income tax benefit ~~to reflect the adjustment allowed by the 2017 Tax Act~~ to utilize indefinite deferred tax liabilities as a source of income against ~~indefinite-lived~~indefinite lived portions of ~~our~~the Company’s deferred tax assets.

Results of Operations for Three Months Ended March 31, ~~2019~~2020 Compared to Three Months Ended March 31, ~~2018~~2019

The following table sets forth our results of operations for the three months ended March 31, ~~2019,~~2020, and ~~2018.~~2019.

We recognized ~~$1.7~~$1.5 million in research and development expenses during the three months ended March 31, ~~2019~~2020 compared to ~~$1.8~~$1.7 million during the three months ended March 31, ~~2018.~~2019. The ~~slight~~ decrease in research and development expense was mainly attributable to a ~~$0.5~~$0.4 million decrease in expense related to our Phase 3 GBM trial. The lead-in portion of the Phase 3 GBM trial was completed in the fourth quarter of 2019. This decrease was offset by a ~~$0.4~~$0.1 million increase in manufacturing costs and an increase of $0.1 million in expense related to ~~the commencement of~~ our Phase 2 stroke trial.

General and administrative expenses ~~decreased~~increased by ~~$0.3~~$0.2 million during the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018. Salaries~~2019, mainly due to an increase in professional fees and ~~wages decreased by $0.1 million~~salaries and ~~stock compensation expense decreased by $0.2 million.~~wages.

The ~~decrease~~increase in interest income for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018~~2019 is primarily attributable to having a larger cash and cash equivalents balance earning more interest during the three months ended March 31, ~~2018~~2020 compared to the three months ended March 31, 2019.

~~As a result of the change in net operating loss carryforward period associated with the 2017 Tax Act, we~~We recognized an income tax benefit of $0.4 million and $0.2 million during the three months ended March 31, 2020 and 2019, respectively, to reflect the utilization of indefinite deferred tax liabilities as a source of income against ~~indefinite-lived~~indefinite lived portions of the our deferred tax assets.

To date, we have funded our operations primarily through the sale and issuance of preferred stock, common stock and convertible promissory notes. As of March 31, ~~2019,~~2020, we had ~~$5.3~~$10.8 million in cash and cash equivalents, working capital of ~~$5.2~~$10.4 million and an accumulated deficit of ~~$82.7~~$94.3 million. We expect to continue to incur net losses for the foreseeable future. We intend to use our existing cash and cash equivalents to fund our working capital and research and development of our product candidates.

The following table sets forth our cash flows for the three months ended March 31, ~~2019~~2020 and ~~2018:~~2019:

Net cash used in operating activities of $3.5 million during the three months ended March 31, 2020 was primarily attributable to our net loss of $2.6 million, our net change in operating assets and liabilities of $0.8 million and our change in deferred income taxes of $0.4 million. This amount was offset by $0.2 million in stock-based compensation expense and depreciation expense. The net change in our operating assets and liabilities is primarily attributable to a decrease in our accounts payable and accrued expenses due to the timing of our payments to our vendors and employees as well as an increase in our prepaid expenses, deposits and other current assets.

Net cash used in operating activities of $2.7 million during the three months ended March 31, 2019 was primarily attributable to our net loss of $2.7 million and our change in deferred income taxes of $0.2 million. This amount was offset by our net change in operating assets and liabilities of $0.1 million and $0.1 million in stock-based compensation expense and depreciation expense. The net change in our operating assets and liabilities is primarily attributable to an increase in our accounts payable and accrued expenses due to the timing of our payments to our vendors, slightly offset by an increase in our prepaid expenses, deposits and other current assets.

Net cash used in operating activities of $3.3 million during the three months ended March 31, 2018 was primarily attributable to our net loss of $3.3 million and our net change in operating assets and liabilities of $0.3 million. This amount was offset by $0.4 million in stock-based compensation expense and depreciation expense. The net change in our operating assets and liabilities is primarily attributable to the decrease in our accounts payable and accrued expenses due to the payments of employee bonuses and payments to our vendors.

Net cash provided by financing activities was ~~$10.6~~$0.2 million during the three months ended March 31, ~~2018~~2020, which was attributable to the ~~$10.8~~$0.4 million in proceeds received ~~upon~~from the ~~sale~~exercise of ~~our Common Stock,~~common stock warrants, offset by approximately $0.2 million in payments for ~~related~~ offering costs.

We had no ~~such~~ financing activities during the three months ended March 31, 2019.

On December 13, 2018, we filed a Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a 1-to-15 reverse stock split (the “Reverse Stock Split”) of our common stock. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who otherwise would have been entitled to receive fractional shares of our common stock had their holdings rounded up to the next whole share. Proportional adjustments were made to our outstanding warrants, stock options, and other equity securities and to our 2015 Equity Incentive Plan, as amended, to reflect the Reverse Stock Split, in each case, in accordance with the terms thereof. Unless the context otherwise requires, all share and per share amounts in this quarterly report on Form 10-Q have been adjusted to reflect the Reverse Stock Split.

We expect to continue to incur substantial expenses and generate significant operating losses as we continue to pursue our business strategy of developing our lead product candidate, TSC, for use in the treatment of ARDS, stroke, GBM, ~~stroke~~ and other hypoxia related indications. Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts of cash to advance the clinical development of our product ~~candidates and to commercialize any product candidates for which we receive regulatory approval.~~candidates. At the current time, the bulk of our cash resources for clinical development is dedicated to the Phase ~~3 trial for TSC in inoperable GBM and the Phase~~ 2 trial for TSC in acute ~~stroke.~~stroke, and if approved by the FDA, clinical work for TSC in the treatment of ARDS in COVID-19 patients. While we believe we have adequate cash resources to continue operations into ~~July 2019,~~the third quarter of 2021, we will need to raise additional funds in order to complete these trials. We do not expect to commence any clinical trials beyond these trials unless we are able to raise additional capital, enter into a strategic ~~partnership,~~collaborations, or make alternative financing arrangements for any such trials. To date, we have funded our ongoing business operations and short-term liquidity needs, primarily through the sale and issuance of preferred stock, common stock and convertible debt. We expect to continue this practice for the foreseeable future, however, we may enter into strategic partnerships or transactions in order to fund our ongoing capital requirements.

As of March 31, ~~2019,~~2020, we did not have credit facilities under which we could borrow funds or any other sources of committed capital. We will seek to raise additional funds through various sources, such as equity and debt financings, or through strategic collaborations or licensing agreements. We can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such funds are available to us, that such additional financing will be sufficient to meet our needs or be on terms acceptable to ~~us.~~us, or that potential delays in clinical trials due to the impact of COVID-19 could increase the anticipated cost of completing our clinical trials. This risk may increase if economic and market conditions deteriorate. If we are unable to obtain additional financing when needed, we may need to terminate, significantly modify or delay the development of our product candidates and our operations, or we may need to obtain funds through collaborators that may require us to relinquish rights to our technologies or product candidates that we might otherwise seek to develop or commercialize independently. If we are unable to raise any additional capital in the near-term and/or we cannot significantly reduce our expenses and are forced to terminate our operations, investors may experience a complete loss of their investment.

To the extent that we raise additional capital through the sale of our common stock, the interests of our current stockholders may be diluted. Also, the Company’s outstanding warrants, if exercised, or any future warrants, if exercised, will dilute the interests of our current stockholders. If we issue ~~additional~~ preferred stock, or convertible debt securities, it could affect the rights of our common stockholders or reduce the value of our common stock or any outstanding classes of preferred stock. In particular, specific rights granted to future holders of preferred stock or convertible debt securities may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

We do not have any off-balance sheet arrangements, as defined by the rules and regulations of the SEC that have or are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these arrangements.

The Critical Accounting Policies included in our Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the SEC pursuant to Section 13 or 15(d) under the Securities Act on March ~~19, 2019~~17, 2020 have not ~~changed aside from goodwill no longer being a critical accounting policy.~~changed.

This report includes forward-looking statements. We may, in some cases, use terms such as “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “could,” “might,” “will,” “should,” “approximately” or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. Forward-looking statements appear in a number of places throughout this Quarterly Report and include statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things, our ongoing and planned preclinical development and clinical trials, the timing of and our ability to make regulatory filings and obtain regulatory and ~~maintain regulatory~~other approvals for our product candidates, our intellectual property position, our ability to maintain our Nasdaq listing, the degree of clinical utility of our products, particularly in specific patient populations, our ability to develop commercial functions, expectations regarding clinical trial data, general business and market conditions, our results of operations, the sufficiency of the Company’s cash, ~~needs,~~the Company’s need for and ability to obtain additional financing or partnering arrangements, financial condition, liquidity, prospects, growth and strategies, the industry in which we operate and the trends that may affect the industry or us.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics and industry change, and depend on the economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained or incorporated by reference in this Quarterly Report, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained or incorporated by reference in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained or incorporated by reference in this Quarterly Report, they may not be predictive of results or developments in future periods.

Actual results could differ materially from our forward-looking statements due to a number of factors, including risks related to:

You should also read carefully the factors described in the “Risk Factors” section of our Annual Report on Form 10-K filed with the SEC on March ~~19, 2019,~~17, 2020, as amended, and elsewhere in our public filings to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements contained or incorporated by reference in this Quarterly Report on Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all.

Any forward-looking statements that we make in this Quarterly Report speak only as of the date of such statement, and, except as required by applicable law, we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

This Item 3 is not applicable to us as a smaller reporting company and has been omitted.

We maintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we are required to apply our judgment in evaluating the cost-benefit relationship of possible internal controls. Our management evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered in this report. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of such period to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure.

There were no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during the quarter ended March 31, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

For this item, please refer to Note 7, Commitments and Contingencies to the Notes to the Unaudited ~~Condensed~~ Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item IA - "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, which could materially affect our business, financial condition or future results.

AsEvents outside of our control, including public health crises such as the COVID-19 pandemic, could negatively affect our business and our operating results.

The novel coronavirus (“COVID-19”) pandemic has resulted in significant financial market volatility, and its impact on the global economy and our operations remains uncertain. A continuation or worsening of the ~~date~~pandemic could have a material adverse impact on our business, results of ~~this Quarterly Report~~operations and financial condition and on ~~Form 10-Q, there~~the market price of our common stock.

On March 12, 2020, the World Health Organization declared COVID-19 to be a pandemic. In an effort to contain and mitigate the spread of COVID-19, many countries worldwide have imposed quarantines, business closures and unprecedented restrictions on travel. The outbreak and government measures taken in response, have had a significant impact, both direct and indirect, on economic activity, as worker shortages have occurred, supply chains have been ~~no material changes~~disrupted, facilities and production have been suspended and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services has fallen.

As a result of the COVID-19 pandemic, we may experience disruptions that could severely impact our business and clinical trials, including:

Any negative impact that the COVID-19 pandemic has on recruiting or retaining patients in our clinical trials, the ability of our suppliers to provide materials for our product candidates, or the regulatory review process could cause additional delays with respect to product development activities, which could materially and adversely affect our ability to obtain regulatory approval for and to commercialize our product candidates, increase our operating expenses, affect our ability to raise additional capital, and have a material adverse effect on our financial results. In addition, our clinical trial patients who contract COVID-19 may have adverse health outcomes that could impact the results of our clinical trials.

The COVID-19 pandemic has resulted in significant financial market volatility and uncertainty in recent weeks and continues to rapidly evolve. The extent to which the outbreak impacts our business and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price of our common stock.

We face risks related to the planned clinical program to test TSC as a treatment for COVID-19, which has not been approved by the FDA or any other regulatory authority.

In response to the recent global outbreak of COVID-19, on April 24, 2020, we submitted a Pre-Investigational New Drug Application (Pre-IND) to the FDA related to a planned clinical program using TSC in COVID-19 patients displaying severe respiratory symptoms and low oxygen levels. Under federal regulations, the FDA has up to 60 days to hold an advisory meeting with us, but for COVID-19-related submissions, the FDA has notified us of its intention to accelerate its review of the Pre-IND submission under its Coronavirus Treatment Acceleration Program. Clinical trial start-up preparations are continuing as we await the FDA’s response. The estimated timing of regulatory approval is based on factors ~~previously disclosed on Form 10-K~~beyond our control, including but not limited to, unforeseen scheduling difficulties and unfavorable results at various stages in the pre-market application process. This FDA approval or clearance process may be time-consuming and costly. Moreover, there is no guarantee that the pre-IND submission will ultimately be acceptable to the FDA for an IND submission or that the FDA will not require significant changes that might take significant time to implement, if at all, or that any such required changes will be financially feasible for the ~~year ended December 31, 2018.~~Company. Even if the Pre-IND or a revised protocol is acceptable to the FDA for an IND submission, there can be no assurance as to when the FDA might provide such guidance or when the program might be able to commence, if at all. We intend to work closely with the FDA to determine the best path forward to obtain approval, but we cannot guarantee that these efforts will be successful. Even if FDA approval for trials evaluating TSC for the treatment of ARDS is ultimately granted and we are able to move forward with clinical trials, such trials may entail significant additional time, effort and expense, particularly in light of the difficulty of doing business during the COVID-19 pandemic. In addition, there is no assurance of favorable results from any clinical trials, or that one or more of such trials will be completed in the currently anticipated timelines or at all. Further, we may make a strategic decision to discontinue clinical testing of TSC in COVID-19 patients, including in the event that other parties are successful in developing a more effective treatment for COVID-19.

We have committed significant capital and resources to begin funding and supplying the clinical trials for the COVID-19 program. If we are unable to obtain regulatory approvals, or if clinical trials fail to demonstrate the clinical safety profile or the efficacy of TSC for the treatment of ARDS in COVID-19 patients, or if we make a strategic decision to discontinue testing TSC as a treatment for COVID-19 patients, we will be unable to recoup our significant expenses incurred to date and in the future related to the clinical program and the FDA approval process.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	March 31, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	5,333,714		$	7,991,172		$	10,828,228		$	14,177,349
Prepaid expenses, deposits and other current assets		1,050,008			923,059			888,234			472,464
Total current assets		6,383,722			8,914,231			11,716,462			14,649,813
Property and equipment, net		332,009			350,281			225,346			252,366
Intangible asset		8,639,000			8,639,000			8,639,000			8,639,000
Right of use asset		313,364			—			223,757			247,043
Other assets		319,724			298,480			252,561			322,301
Total assets	$	15,987,819		$	18,201,992		$	21,057,126		$	24,110,523
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		480,016			198,818			655,298			1,251,412
Accrued expenses and other current liabilities		603,448			605,226			519,552			358,532
Current operating lease liability		110,001			—			111,970			111,477
Total current liabilities		1,193,465			804,044			1,286,820			1,721,421
Deferred income taxes		1,636,037			1,786,389			1,756,894			2,119,274
Noncurrent operating lease liability		203,363			—			111,787			135,566
Total liabilities		3,032,865			2,590,433			3,155,501			3,976,261
Commitments and Contingencies (Note 7)
Stockholders’ Equity:
Common stock, $0.001 par value:
1,000,000,000 shares authorized; 3,376,230 shares issued and outstanding at March 31, 2019 and December 31, 2018.		3,377			3,377
1,000,000,000 shares authorized; 34,604,436 and 33,480,365 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively								34,605			33,481
Additional paid-in capital		95,624,085			95,532,881			112,149,913			111,824,859
Accumulated deficit		(82,672,508	)		(79,924,699	)		(94,282,893	)		(91,724,078	)
Total stockholders' equity		12,954,954			15,611,559			17,901,625			20,134,262
Total liabilities and stockholders' equity	$	15,987,819		$	18,201,992		$	21,057,126		$	24,110,523

	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Operating expenses:
Research and development	$	1,699,845		$	1,825,568		$	1,534,467		$	1,699,845
General and administrative		1,200,728			1,497,839			1,393,808			1,200,728
Depreciation		18,272			28,018			27,020			18,272
Loss from operations		2,918,845			3,351,425			2,955,295			2,918,845
Other income:
Interest income		(20,684	)		(37,464	)		(34,100	)		(20,684	)
Loss from operations before income tax benefit		(2,898,161	)		(3,313,961	)		(2,921,195	)		(2,898,161	)
Income tax benefit		(150,352	)		—			(362,380	)		(150,352	)
Net loss	$	(2,747,809	)	$	(3,313,961	)	$	(2,558,815	)	$	(2,747,809	)
Series A cumulative preferred dividends		—			(85,993	)
Deemed dividend related to the make-whole provision for the conversion of Series A preferred stock into common stock		—			(8,167,895	)
Net loss attributable to common stockholders	$	(2,747,809	)	$	(11,567,849	)
Per share information:
Net loss per share of common stock, basic and diluted	$	(0.81	)	$	(4.11	)	$	(0.07	)	$	(0.81	)
Weighted average shares outstanding, basic and diluted		3,376,230			2,814,316			34,507,496			3,376,230

	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Operating activities:
Net loss	$	(2,747,809	)	$	(3,313,961	)	$	(2,558,815	)	$	(2,747,809	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		18,272			28,018			27,020			18,272
Stock-based compensation expense		91,204			324,667			191,380			91,204
Change in deferred income taxes		(150,352	)		—			(362,380	)		(150,352	)
Non-cash interest expense		—			1,356
Changes in operating assets and liabilities:
Prepaid expenses, deposits and other assets		(119,644	)		(92,944	)		(346,030	)		(119,644	)
Accounts payable, accrued expenses and other liabilities		250,871			(236,420	)		(455,489	)		250,871
Net cash used in operating activities		(2,657,458	)		(3,289,284	)		(3,504,314	)		(2,657,458	)

Cash flows provided by financing activities:
Proceeds from the sale of common stock		—			10,846,062
Payment of offering costs		—			(253,765	)
Proceeds received from the exercise of common stock warrants								393,425			—
Payment of financing costs that were previously classified in accounts payable								(238,232	)		—
Net cash provided by financing activities		—			10,592,297			155,193			—

Net (decrease) increase in cash and cash equivalents		(2,657,458	)		7,303,013
Net decrease in cash and cash equivalents								(3,349,121	)		(2,657,458	)
Cash and cash equivalents at beginning of period		7,991,172			8,896,468			14,177,349			7,991,172
Cash and cash equivalents at end of period	$	5,333,714		$	16,199,481		$	10,828,228		$	5,333,714

Supplemental disclosure of non-cash investing and financing activities:
Reclassification of accrued dividends related to the issuance of common stock to the Series A convertible preferred stockholders	$	—		$	1,148,307
Offering costs in accounts payable and accrued expenses	$	28,549		$	174,777		$	258,627		$	28,549
Series A cumulative preferred dividends	$	—		$	(85,993	)
Operating lease right of use asset and current and noncurrent liability	$	334,205		$	—		$	—		$	334,205

	March 31, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Accrued payroll and payroll related expenses		258,877		409,889	$	149,620	$	182,708
Accrued professional fees		96,124		69,231		338,627		48,338
Accrued clinical studies expenses		170,755		34,000		9,100		57,378
Other accrued expenses		77,692		92,106		22,205		70,108
Total	$	603,448	$	605,226	$	519,552	$	358,532

Expected term (in years)	~~5.77~~5.70
Risk-free interest rate	~~2.5~~1.7	%
Expected volatility	~~114.4~~113.7	%
Dividend yield	—

	Convertible Preferred Stock					Stockholders' Equity
	Series A					Common Stock				Additional						Total
	Shares			Amount		Shares		Amount		Paid-in Capital			Accumulated Deficit			Stockholders' Equity
Balance at January 1, 2018		8,306,278		$	—		967,976	$	968	$	82,783,865		$	(61,554,889	)	$	21,229,944
Conversion of Series A convertible preferred stock to common stock		(8,306,278	)		—		553,752		554		(554	)		—			—
Issuance of common stock to Series A convertible preferred stockholders under make-whole adjustment feature		—			—		777,895		778		(778	)		—			—
Issuance of common stock related to accrued dividends		—			—		68,815		69		1,148,238			—			1,148,307
Series A cumulative preferred dividend		—			—		—		—		(85,993	)		—			(85,993	)
Issuance of common stock and warrants, net of issuance costs		—			—		1,000,000		1,000		10,416,520			—			10,417,520
Stock-based compensation expense		—			—		—		—		324,667			—			324,667
Net loss		—			—		—		—		—			(3,313,961	)		(3,313,961	)
Balance at March 31, 2018		—		$	—		3,368,438	$	3,369	$	94,585,965		$	(64,868,850	)	$	29,720,484

	Number of Options			Weighted average exercise price per share		Weighted average remaining contractual life (in years)	Aggregate intrinsic value
Balance at January 1, 2019		203,736		$	88.14		$	143
Granted		59,670			2.10
Forfeited		(7,202	)		123.38
Expired		(147	)		276.00
Outstanding at March 31, 2019		256,057		$	66.99	7.19	$	96,716
Exercisable at March 31, 2019		175,720		$	93.36	6.19	$	8,651

	Three Months Ended March 31,						Three Months Ended March 31,
Net cash (used in) provided by:	2019			2018			2020			2019
Operating activities	$	(2,657,458	)	$	(3,289,284	)	$	(3,504,314	)	$	(2,657,458	)
Financing activities		—			10,592,297			155,193			—
Net (decrease) increase in cash and cash equivalents	$	(2,657,458	)	$	7,303,013
Net decrease in cash and cash equivalents							$	(3,349,121	)	$	(2,657,458	)

	•	interruption or delays in the operations of the FDA or other regulatory authorities, which may impact review and approval timelines;

	•	interruption of, or delays in receiving, supplies for productions of our product candidates from our third party suppliers due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems;

Exhibit No.	Description	Method of Filing
10.1	Separation Agreement, dated March 12, 2020, by and between Diffusion Pharmaceuticals Inc, and John L. Gainer	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 18, 2020
10.2	Consulting Agreement, dated March 12, 2020, by and between Diffusion Pharmaceuticals Inc, and John L. Gainer	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 18, 2020
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and SEC Rule 13a-14(a)	Filed herewith
31.2	Certification of principal financial officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and SEC Rule 13a-14(a)	Filed herewith
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Furnished herewith
32.2	Certification of principal financial officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Furnished herewith
101	The following materials from Diffusion’s quarterly report on Form 10-Q for the quarter ended March 31, ~~2019,~~2020, formatted in XBRL (Extensible Business Reporting Language): (i) the Unaudited ~~Condensed~~ Consolidated Balance Sheets, (ii) the Unaudited ~~Condensed~~ Consolidated Statements of Operations, (iii) the Unaudited ~~Condensed~~ Consolidated Statement of Changes in Stockholders’ Equity, ~~(Deficit),~~ (iv) the Unaudited ~~Condensed~~ Consolidated Statements of Cash Flows, and (v) Notes to Unaudited ~~Condensed~~ Consolidated Financial Statements	Filed herewith

		DIFFUSION PHARMACEUTICALS INC.



	By:	/s/ David G. Kalergis
		David G. Kalergis
		Chairman and Chief Executive Officer
		(Principal Executive Officer)


	By:	/s/ William Hornung
		William Hornung
		Chief Financial Officer
		(Principal Financial and Accounting Officer)